Disclaiming an Inheritance can Constitue a Fraudulent Conveyance

Transferring an asset under certain circumstances can constitute a fraudulent conveyance. Refusing to accept an asset can also constitute a fraudulent conveyance.

Let’s say that you owe a creditor a significant amount of money. You then learn that you have received a substantial inheritance. If you take the inheritance it will go to the creditor. So you decide to disclaim the inhertiance so that it can go to another family member. In most states, that disclaimer will be deemed a fraudulent conveyance. This all depends on state law; but the majority view seems to be that the creditor will be able to successfully reach those funds.

This is why multi-generational asset protection planning can be very important (just like multi-generational estate planning). If the person leaving the inheritance had left it in a trust (with the right kind of provisions) it probably could have been protected.

It is important to keep in mind that many state fraudulent transfer laws are broad enough to encompass disclaiming certain assets as well as transferring certain assets.